Chapter Five EUROPEAN COMPETITION POLICY. Role of Competition Policy Promote economic efficiency To...
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Transcript of Chapter Five EUROPEAN COMPETITION POLICY. Role of Competition Policy Promote economic efficiency To...
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Chapter Five
EUROPEAN COMPETITION POLICY
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Role of Competition Policy
• Promote economic efficiency
• To control intensity of competition within economy
• Some areas it is promoted
• In others, it is limited
• Consumer protection
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Business Strategy and Competition Policy
• Provides legal framework
• Guides commercial activities
• Offers check upon corporate power
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Requirements of Business
Business requires:
• Credibility of enforcement
• Certainty of application
• Consistency of policy outcomes
• Effective sanctions
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Why a policy for competition ?
Competition is seen as a socio-economic good due to:
• improved quality
• stimulates innovation
• lower prices
• economic efficiency
• choice
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Theory and Real World
• Theory expressed in policy
• Perfect Competition traditional basis for policy
• Monopoly is bad
• But theory is often ambiguous vis-a-vis real world
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THE CORE PARADIGM
STRUCTURE
CONDUCT
PERFORMANCE
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EU Competition Policy
• Applies to trade between member states
• Aim to sustain free and fair trade
• Rising in importance and influence as integration deepens
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Economic Integration and Competition Policy
• Pro-active and re-active to policy
• Interdependence between different national systems
• Need for common rules and principles between states
• Allow consolidation and intensification of competition
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Article 81
• Cartels etc.
• Restrictions on distribution, production, technological development
• Price discrimination
• Unfair prices
• Predatory pricing
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Article 81(3) of Treaty of Rome
An agreement or arrangement could be exempted if allof the following are satisfied:
1. It contributes to improving the production or distribution of goods or promotes technical or economic progress.
2. Consumers are allowed a fair share of the benefit.
3. It does not involve any restrictions which are not absolutely essential in order to attain these two objectives.
4. Competition is not eliminated.
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Article 81 • Car industry -exclusive dealerships
• Steel Industry - Crisis cartels
• Airbus - Global market place
• Telecommunications Sector - Mergers alliances
• Telecoms and Cable Concerns
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Article 82• Abuse of dominant position
• Single enterprise exert influence over market
• Note: dominance not bad per se: only abuse
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Article 86• Applies Articles 81 and 82 to state-
owned or protected enterprises
• Used for telecoms, energy and other network or protected industries
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Article 87• State Aids (subsidies, low interest rates
loans etc.)
• Market Investor Principle
• Airlines - struggle with EC
• Some aid allowed
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1999 - Reform of EU Policy
• Decentralise investigations
• Joint responsibility between EU and States
• Limit exemptions from EU Law
• Free up EU resources is aim of reform
• EU merely target biggest competitive distortions
• Enterprise focus on Member states
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Reforms of 1999 (2)• Less time-wasting on small cases
• Become effective trust buster
• Result of excessive case load from SEM Programme
• Also inflation had lowered value of thresholds
• Further tightening of state aids
• Exempt agreements between enterprises that have > 30% of market
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Future of EU Policy• Integration deepens - increase salience
of Competition policy
• EU-wide cartel body
• Convergence of national laws
• Single body inevitable - will aid business strategy formation
• seek international agreement
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Future of EU Policy
• Business increasingly concerned of intervention
• Feel too tough on big business